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[2009] HCA 32
appellant. Appeal allowed with costs. Orders of the Full Court of the Federal Court made on 25 February 2009 set aside, and in their place the appeal to that Court dismissed with costs.
14 cited instruments linked from this judgment.
Once a company is being wound up by its creditors, the tax office cannot bypass the normal creditor queue by sending a special notice to a third party holding the company's money. The High Court ruled that such notices count as attachments that are automatically invalid after winding up starts, and that a more specific law for liquidators must be used instead. This protects the equal sharing of assets among all creditors.
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2,851 words · generated 24/04/2026
Bruton Holdings Pty Limited had acted as trustee of the Bruton Educational Trust. Between October 2005 and February 2007 it paid approximately $470,000 to its solicitors, Piper Alderman, to be held in the firm's trust account on account of costs and disbursements for Federal Court litigation concerning the Trust's tax-exempt status. On 28 February 2007 administrators were appointed under s 436A of the Corporations Act 2001 (Cth). That appointment triggered cl 10.2(b) of the Trust Deed and brought the appellant's trusteeship to an end, although its equitable lien over the trust assets for properly incurred expenses survived.
On 26 March 2007 the Commissioner issued an assessment to the "Trustee for Bruton Educational Trust" for the year ended 30 June 2004 in the sum of $7,715,873.73. On 30 April 2007 the creditors resolved under s 439C that the company be wound up, with the administrators becoming joint liquidators. The winding up was therefore taken to have commenced on 28 February 2007 (ss 513B(b) and 513C(b)). On 8 May 2007 the Commissioner lodged a proof of debt for the full assessed amount. The following day Piper Alderman received a notice dated 8 May 2007 issued under s 260-5 of Sch 1 to the Taxation Administration Act 1953 (Cth). The notice recited the appellant's indebtedness to the Commonwealth and required Piper Alderman to pay the Commissioner $447,420.20 from the sum held in the trust account.
The primary judge (Allsop J) declared the notice void. The Full Court of the Federal Court (Ryan, Mansfield and Dowsett JJ) allowed the Commissioner's appeal. The High Court granted special leave and unanimously allowed the further appeal, restoring the primary judge's orders. The Court held that the s 260-5 notice could not lawfully be issued once the company was in liquidation and that, in any event, it constituted an attachment rendered void by s 500(1) of the Corporations Act.
The facts also raised, but did not require resolution of, questions peculiar to the winding up of a trustee company. The appellant enjoyed a lien over the whole of the trust assets for its right of exoneration. That lien conferred a proprietary interest that, on the reasoning of both the primary judge and the Full Court, amounted to "property" of the company for the purposes of s 500(1). The Commissioner argued that because the tax debt remained unpaid the right was one of exoneration only, that the Commissioner was subrogated to it, and that therefore no relevant "property" of the appellant was involved. The Court found it unnecessary to rule on those submissions because the construction of the Administration Act disposed of the appeal.
The joint judgment of French CJ, Gummow, Hayne, Heydon and Bell JJ begins by identifying the "ultimate question" as whether, after the resolution for voluntary winding up, the company's property could lawfully be diminished by a s 260-5 notice. The reasoning proceeds in three linked steps.
First, the Court examined the scheme of Ch 5 of the Corporations Act. Section 501 requires that, subject to preferential payments, the company's property be applied in satisfaction of liabilities equally, with any surplus distributed to members. Section 555 reinforces that all debts and claims rank equally and, if assets are insufficient, are paid proportionately. Section 500(1) provides that any attachment, sequestration, distress or execution put in force against the company's property after the resolution is void. These provisions bind the Crown (s 5A(2)). The evident statutory purpose is to freeze the company's estate at the date of winding up and to ensure orderly, pari passu distribution.
Second, the Court turned to Div 260 of Sch 1 to the Administration Act. Section 260-5 is a general garnishee-style provision that obliges a third party to pay the Commissioner moneys owed or that may become owed to a tax debtor. Non-compliance is an offence, and payment to the Commissioner discharges the third party's liability to the taxpayer. By contrast, s 260-45 is a self-contained code that applies specifically once a liquidator has been appointed. It requires the Commissioner to notify the liquidator of the amount considered sufficient to cover tax-related liabilities. The liquidator must then set aside from assets available to pay tax debts and ordinary unsecured debts the proportion that would be payable under s 555, and is personally liable to pay that amount to the Commissioner. Breach is also an offence. The Court treated this as a classic instance of the principle that specific provisions exclude more general ones that might otherwise apply.
Third, the Court concluded that the general power in s 260-5 is therefore unavailable once a liquidator is appointed. Any other reading would permit the Commissioner to disrupt the statutory distribution by seizing particular debts owed to the company, with the extent of recovery depending on the accident of which assets were still held by third parties and how quickly the liquidator gathered them in. That outcome would be "adventitious" and inconsistent with the proportionate system established by s 260-45 and the pari passu rule. The emphatic language of s 500(1) ("any attachment … is void") reinforced the construction that Parliament did not intend the general power to operate in liquidation. The Court noted that when the Crown enjoyed priority for tax debts it had been necessary to enact express overriding provisions; after the abolition of that priority by the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth), the specific liquidation mechanism in s 260-45 took its place.
The Court also held that a s 260-5 notice falls within the statutory concept of "attachment". It cited the historical development of garnishee procedures from the Common Law Procedure Act 1854 (UK) and noted that by the time s 163 of the Companies Act 1862 (UK) (the ancestor of s 500(1)) was enacted, "attachment" was understood to include statutory garnishee remedies. The notice imposes an obligation to pay the Commissioner, prohibits payment to the taxpayer, invalidates post-notice assignments, and gives the Commissioner the sole right to discharge the debt. These are the classic indicia of attachment. The Court distinguished the Full Court's earlier decision in Commissioner of Taxation v Donnelly, which had limited "attachment" in s 118 of the Bankruptcy Act 1966 (Cth) to curial processes; that section has a different history, links attachment to execution and taxed costs, and contains features absent from s 500(1). Section 500(1) expressly includes the non-curial remedy of distress, confirming that its operation is not confined to court orders.
Because the Corporations Act and the Administration Act could be read harmoniously once the specific liquidation regime was recognised as exclusive, there was no need to resolve any direct conflict between the two statutes. The result was that the s 260-5 notice was both unavailable under the Administration Act and, in any event, void under s 500(1).
Prior to this decision the relationship between the Commissioner's garnishee powers and the winding-up regime had been attended by uncertainty. The statutory garnishee provisions originated in s 50A of the Income Tax Assessment Act 1915 (Cth) and were re-enacted in s 218 of the Income Tax Assessment Act 1936 (Cth). Courts had characterised them as "statutory garnishee provisions" that operated without curial intervention and gave the Commissioner rights analogous to those of a judgment creditor under a garnishee order. At the same time, the Companies Act 1862 (UK) and its Australian successors had for more than a century rendered post-winding-up attachments void. When the Crown enjoyed priority for tax debts, express provisions were required to give that priority effect in liquidations. After the 1980 abolition of Crown priority, the question arose whether the general garnishee power could still be used to achieve de facto priority by attaching debts owed to the company after liquidation had commenced.
The Full Court in this matter had relied on Donnelly to confine s 500(1) to curial attachments. That approach treated the bankruptcy and corporate insolvency provisions as in pari materia. The High Court held that the legislative histories and textual features of the two provisions are materially different. Section 118 of the Bankruptcy Act is concerned with clawing back the proceeds of executions within six months of a petition and contains references to instituted proceedings, taxed costs and executions against property. Section 500(1) contains none of those limitations and expressly catches distress. Accordingly, Donnelly was distinguished.
After the decision, the law is clear. Once a resolution for voluntary winding up has passed (or a court-ordered winding up has commenced), the Commissioner's only avenue for recovery against the company is the specific regime in s 260-45. A liquidator must be notified, must set aside a proportionate share calculated by reference to s 555, and is personally liable to the extent of the assets so set aside. Any attempt to use s 260-5 after that point is both outside the power conferred by the Administration Act and void under s 500(1). The pari passu principle is thereby preserved against selective attachment of debts owed to the company. The decision also confirms that the broad definition of "property" in s 9 extends to equitable liens and things in action, although the precise interaction with trustee liens was left for another day.
The joint judgment contains several passages that repay close attention.
At [12] the Court states: "These reasons will demonstrate that the Commissioner's general power to issue a notice under s 260-5 is not available if a liquidator has been appointed to a company. In that latter circumstance, only the more particular provisions of s 260-45 of the Administration Act are engaged." In plain English, once a liquidator is in place the ATO must use the special liquidation rules; the ordinary debt-collection notice cannot be deployed.
At 17 the Court lists as a supporting consideration that "the process for which s 260-5 provides falls within the expression 'attachment' when used in s 500(1)". This is the pivotal holding that brings the notice within the voiding provision. The ordinary meaning of attachment—freezing a debt in the hands of a third party and giving the attaching creditor direct rights against that third party—fits the statutory garnishee exactly.
At [35] the Court rejects the Full Court's limitation: "An examination of s 500(1), and Ch 5 of the Corporations Act of which it forms part, does not reveal any reason to restrict the meaning of the expression 'any attachment' employed in the section … This extends to curial and non-curial attachments, including those effectuated by notices issued pursuant to s 260-5". Translation: the statutory language is deliberately wide. Because s 500(1) catches distress (a non-curial remedy) there is no textual basis for reading it down to court orders only. The notice is therefore caught and rendered void.
At [18] the Court explains the consequence of the specific regime: "the proportionate system established by s 260-45 for liquidations would be subject to adventitious disruption if the circumstance that a third party was indebted to the company gave to the Crown full garnishee rights under s 260-5". In other words, the amount the ATO ultimately recovers would turn on the happenstance of which assets remained in the hands of debtors at the date of liquidation and how quickly the liquidator collected them—an outcome inconsistent with equal treatment of creditors.
These passages are grounded in the text and history of both statutes and in the principle that specific provisions exclude general ones. They leave no room for a construction that would allow the Commissioner to "jump the queue" after winding up has begun.
The decision is engaged whenever a company is in voluntary liquidation (or, by parity of reasoning, court-ordered liquidation) and the Commissioner seeks to recover a tax-related liability by issuing a s 260-5 notice to a third party who owes money to the company. The critical temporal fact is the passing of the resolution for winding up (or the making of the winding-up order). Any notice issued after that date is both outside power and void.
The precedent applies even if the third party holds funds in a trust account, provided those funds represent "property" of the company. It is not limited to debts that have already crystallised; the statutory language "owes or may later owe" is broad. The decision is not confined to cases in which other creditors exist; the proportionate mechanism in s 260-45 still operates even if the Commissioner is the only admitted creditor, because the liquidator must still follow the statutory procedure rather than permit a direct attachment.
The reasoning is not engaged if the s 260-5 notice was served before the winding-up resolution. Nor does the case disturb the Commissioner's rights while the company is in administration prior to a winding-up resolution. The decision is also limited to the interaction between s 260-5 and the winding-up regime; it does not affect other recovery mechanisms such as statutory demands or proceedings to recover judgment debts.
Although the judgment itself does not discuss subsequent authority, its reasoning has supplied the authoritative framework for construing the relationship between Div 260 and Ch 5 of the Corporations Act. Courts have accepted that s 260-45 constitutes a specific code that excludes the general s 260-5 power once a liquidator is appointed. The characterisation of a s 260-5 notice as an "attachment" for the purposes of s 500(1) (and its counterpart s 468(4) for court-ordered windings up) has been treated as settled. The distinction drawn between the legislative history and text of s 500(1) on the one hand and s 118 of the Bankruptcy Act on the other has been regarded as controlling when analogous questions arise in corporate insolvency.
The High Court's emphasis on harmonious construction—using the Corporations Act to inform the limits of the Commissioner's powers under the Administration Act—has guided decisions concerning the interaction of tax-recovery provisions with the insolvency regime. The affirmation that Ch 5 binds the Crown and that specific liquidation rules cannot be circumvented by general garnishee powers has removed earlier uncertainty created by the Donnelly line of authority in the corporate context. Later decisions have therefore applied rather than distinguished the central propositions in Bruton Holdings when liquidators have resisted post-commencement s 260-5 notices.
The Court expressly left two related issues undecided. First, the precise characterisation of a trustee company's interest in trust assets where the only creditor is the Commissioner and the right is one of exoneration rather than recoupment. The Commissioner had argued that in those circumstances the "property" protected by s 500(1) was not that of the company. Because the construction of the Administration Act was sufficient to dispose of the appeal, the Court did not rule on the submission. That question remains live in future trustee liquidations, particularly where subrogation rights of creditors are asserted against the trustee's lien.
Second, the interaction between s 260-45 and the lien rights of a former trustee. The judgment notes that the appellant's lien survived the termination of its trusteeship and that the funds in Piper Alderman's account were subject to that lien. How a liquidator is to quantify and deal with such a lien when complying with the proportionate set-aside obligation under s 260-45 was not explored. Practitioners acting for corporate trustees or their liquidators must therefore continue to grapple with the equitable principles governing exoneration, subrogation and the ranking of trust creditors.
A further open question concerns the position where a s 260-5 notice is served shortly before a winding-up resolution but the third party has not yet paid. The present decision does not address the interplay between the notice's effect and the relation-back provisions or the voidable-transaction regime. Finally, the Court did not need to consider whether s 260-15's discharge protection would avail a third party who pays after winding up has commenced; on the reasoning adopted, the notice is simply unavailable and void.
Most practitioners still assume that the Commissioner's garnishee powers are almost unlimited and can be exercised at any time before judgment. Bruton Holdings shows that once the winding-up resolution has passed the power simply does not exist; attempting to use it produces a nullity rather than a priority. Another trap is treating Donnelly as decisive in the corporate sphere. The High Court made clear that the bankruptcy and corporations provisions have distinct histories and textual features; assuming they are co-extensive is a costly error. Liquidators who receive a post-appointment s 260-5 notice should not comply but should instead insist on the s 260-45 notification process. Conversely, the ATO must now factor the proportionate sharing outcome into its proof-of-debt calculations rather than expecting to recover 100 cents in the dollar from identified third-party debts. The decision also contains a subtle warning for trust-company liquidations: the existence of an equitable lien may enlarge the "property" caught by s 500(1), but quantifying that lien remains a fact-sensitive exercise that can generate satellite litigation if not resolved early. In short, the case is a powerful reminder that statutory specificity trumps administrative convenience, even for the revenue.
BRUTON HOLDINGS PTY LIMITED (IN LIQUIDATION) APPELLANT
Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation
S D Robb QC with D R Stack for the appellant (instructed by Nash O'Neill Tomko Lawyers)
A H Slater QC with R L Seiden and E Bishop for the first respondent (instructed by Australian Government Solicitor)
Notice: This copy of the Court's Reasons for Judgment is subject to formal revision prior to publication in the Commonwealth Law Reports.
Bruton Holdings Pty Limited (in liquidation) v Commissioner of Taxation
Taxation - Recovery of tax debts - Company deposited moneys with third party - Passage of creditors' resolution for winding up of company - Commissioner of Taxation ("Commissioner") issued notice under s 260‑5 in Sched 1 to the Taxation Administration Act 1953 (Cth) ("Administration Act") requiring moneys held by third party be paid to Commissioner - Whether s 260‑5 notice may be issued after commencement of winding up - Whether steps taken by Commissioner void and unenforceable as an "attachment" within meaning of s 500(1) of Corporations Act 2001 (Cth) - Relationship between s 260‑5 and s 500(1).
Companies - Winding up - Creditors' voluntary winding up - Whether s 260‑5 in Sched 1 to Administration Act applicable - Relationship between s 260‑5 and s 260‑45.
Corporations Act 2001 (Cth), ss 5A(2), 9, 468(4), 500(1), 500(2), 501, 555, 569.
Taxation Administration Act 1953 (Cth), Sched 1, ss 260‑5, 260‑15, 260‑20, 260‑45, 260‑50.
"Subject to the provisions of this Act as to preferential payments, the property of a company must, on its winding up, be applied in satisfaction of its liabilities equally and, subject to that application, must, unless the company's constitution otherwise provides, be distributed among the members according to their rights and interests in the company."
"any legal or equitable estate or interest (whether present or future and whether vested or contingent) in real or personal property of any description and includes a thing in action".
"Except as otherwise provided by this Act, all debts and claims proved in a winding up rank equally and, if the property of the company is insufficient to meet them in full, they must be paid proportionately."
"(1) Any attachment, sequestration, distress or execution put in force against the property of the company after the passing of the resolution for voluntary winding up is void.
(2) After the passing of the resolution for voluntary winding up, no action or other civil proceeding is to be proceeded with or commenced against the company except by leave of the Court and subject to such terms as the Court imposes."
Section 468(4) applies to a winding up by the court and is relevantly in the same terms as s 500(1). These provisions have an ancestry which commences with s 163 of the Companies Act 1862 (UK) ("the 1862 Act")[4].
"Such an order, though not working an assignment or giving the judgment creditor any proprietary interest in the debt, yet gives him positive rights with respect to it which a creditor having no more than a judgment does not possess; not merely a negative right to prevent the judgment debtor from accepting payment of the debt or disposing of it, but positive rights for the recovery of what is owing on the judgment, namely a right to give a valid receipt and discharge for the money, and a right in case of non‑payment to obtain execution against the garnishee: In re Combined Weighing and Advertising Machine Co[9]."
(a) the process for which s 260‑5 provides falls within the expression "attachment" when used in s 500(1);
(b) the emphatic language of s 500(1) ("[a]ny attachment ... put in force against the property of the company after the passing of the resolution for voluntary winding up is void") is consistent with reading s 260‑5 as not extending the Commissioner's general power to give such a notice to the particular circumstances for which s 260‑45 makes special provision;
(c) before the Taxation Debts (Abolition of Crown Priority) Act 1980 (Cth) ("the 1980 Act") and in the period when the Crown retained priority for tax debts it was necessary to provide specially (by s 221(1)(b) of the 1936 Act[21]) that "notwithstanding anything contained in any other Act or State Act" the liquidator of a company being wound up was bound to apply the assets of the company in payment of tax in priority to all other unsecured debts[22]; and
(d) the proportionate system established by s 260‑45 for liquidations would be subject to adventitious disruption if the circumstance that a third party was indebted to the company gave to the Crown full garnishee rights under s 260‑5; the extent of recovery of a tax debt owed by an insolvent company would depend upon the extent to which the assets of the company comprised debts owed by third parties and the speed with which the liquidator gathered them in; once so gathered the debts would be beyond the scope of the notice provisions and within the scheme of Ch 5 of the Corporations Act.
"We are not aware of any process, either in the superior courts of law or equity, in suits between subject and subject, by which this [attachment of debts] can directly be done, though the course of proceeding under writs of execution at the suit of the crown[[27]], and by way of foreign attachment in the mayor's court of London[[28]] and some other cities, as well as in the courts of many foreign countries, shows that such a remedy would be practicable and useful."
"It may be accepted that historically, and in present usage, the meaning of 'attachment' may extend to means other than a process of the court by which a debt is frozen or seized; the meaning may extend to similar procedures otherwise authorised by legal authority."
The essential point, to adapt what was pointed out by Willes J in The Mayor and Aldermen of the City of London v Cox[34], is that the third party debtor "is safe" in making the payment, whether that safety be by reason of the protection of a curial order or the operation of statute, such as s 260‑15 of the Administration Act.
"Where any Company is being wound up by the Court or subject to the Supervision of the Court, any Attachment, Sequestration, Distress, or Execution put in force against the Estate or Effects of the Company after the Commencement of the Winding-up shall be void to all Intents."
This section does not contain words of limitation which would indicate that its operation was limited to curial attachments. Furthermore, there appears to be no decision, before that currently subject to this appeal, which has held that s 500(1), or any of the preceding provisions to the same effect, is limited in operation to curial attachments.
"the need for certainty in the law can best be recognised by applying the decision in Donnelly to s 500".
The Full Court in Donnelly[36] concluded that "attachment", in s 118 of the Bankruptcy Act 1966 (Cth) ("the Bankruptcy Act"), is confined to attachments by curial order and does not extend to non-curial charges created by notices issued under s 218 of the 1936 Act. However, subsequently, the Full Court in Macquarie Health Corp Ltd v Commissioner of Taxation[37] noted the "considerable force" of the contention that the decision in Donnelly does not apply to what is now s 468(4) of the Corporations Act[38]. The contention applies with equal force to s 500(1).
Bruton Holdings Pty Limited (in liquidation)
Commissioner of Taxation
[1981] HCA 40
[2003] HCA 43
[1998] HCA 4
(2008) 173 FCR 472
(2007) 244 ALR 177
(2008) 82 ALJR 1411
(1961) 108 CLR 84
Appeal allowed with costs. Orders of the Full Court of the Federal Court made on 25 February 2009 set aside, and in their place the appeal to that Court dismissed with costs.
(2007) 232 CLR 598
(1981) 147 CLR 360
(1983) 49 ALR 566
(1981) 150 CLR 1
(1932) 47 CLR 1
(2006) 228 CLR 566
(1988) 165 CLR 55
(1957) 99 CLR 575
(1979) 145 CLR 438
(2003) 214 CLR 397
(1996) 66 FCR 511
(1994) 51 FCR 88
(1989) 25 FCR 432
(1988) 84 ALR 547
(1999) 96 FCR 238
(1954) 92 CLR 262
(1998) 192 CLR 226
(1996) 68 FCR 39